(Bloomberg) — It may be tough to find enough Corona beer for Cinco de Mayo house parties – if that will even be a thing in 2020.
Mexico’s Grupo Modelo, the maker of Corona beer that’s owned by Anheuser-Bush InBev, said late Thursday that it had started shutting down production at its breweries in Mexico and would stop sales entirely by Sunday in order to comply with the government’s coronavirus emergency protocol, which didn’t identify beer production as essential.
On Friday, President Andres Manuel Lopez Obrador said his government was reviewing which types of factories would be considered essential, and said the final decision would be made by health officials. Modelo said it would guarantee beer supply with 75% of its workers operating from their homes, if the government gives it the go-ahead to keep running.
Mexico declared a national health emergency on Monday, but its March 31 notice calling for a halt to non-essential activities for a month has sown uncertainty. The government’s ruling on whether it may allow an exception for beer and alcohol production could weigh on global brewers and spirits producers, Credit Suisse analyst Kaumil Gajrawala said in an April 2 note.
Constellation Brands sank this week on concerns it would have to shutter its breweries but on Friday the company suggested Cinco de Mayo parties in the U.S. would be safe.
Chief executive officer Bill Newlands said its Mexico plants are still operating and that the company had 70 days of inventory that will guarantee no disruption with retailers. “We expect to have no disruption in our ability to produce product and deliver it to retail,” Newlands said in a conference call with analysts.
Constellation makes Corona and Modelo brands for export to the United States, while Grupo Modelo produces the beers for the rest of the world. Heineken, which makes Mexican beers Dos Equis and Tecate, told Credit Suisse it was preparing to suspend production, but that it was making a case to the government that barley growers would be hit.
Heineken shares shed around 7% the past three days, Constellation was down nearly 8% and AB InBev slipped about 2%.
Citigroup analyst Simon Hales said in a note that Mexico’s market is ABInBev’s 4th biggest and Heineken’s largest global market. Bloomberg Intelligence analyst Kenneth Shea said Constellation sources nearly all of its beer from Mexico.
“A potential extended beer plant shutdown in Mexico would be devastating to the company, as its beer sales account for about two-thirds of it sales,” Shea said.
Since Wednesday, videos circulated in social media of lines of cars lined up at drive thru beer stores in Mexico’s north. Another showed lines of shoppers with carts filled to the brim with cases of Corona beer. There were rumors that states would impose dry laws, as is done during elections in Mexico. President Lopez Obrador’s home state of Tabasco banned alcohol sales this week.
Lopez Obrador said on Friday that local governments could make their own decisions, but he pointed out that “panic beer buying” was creating crowds that could risk further contagion.
Tequila makers such as Jose Cuervo maker Becle SAB and Don Julio owner Diageo Plc look to be safe after the state of Jalisco deemed their production essential, citing farm workers that depend on them.
Meanwhile, beer companies are lobbying the Mexican government. Modelo said 800,000 small stores depend on beer sales for 40% of revenues, while 15,000 farm families benefit from barley crops.
Lopez Obrador angered the country’s business leaders late last month after he backed a local referendum to deny permits to a partly-built Constellation plant in the Mexican border town of Mexicali. The president met with company executives this week and Newlands said the company had held productive talks that will lead to a favorable solution, but he declined to share details.
(Updates with Constellation CEO comments in paragraph 6 and 15 and analyst comment in paragraphs 9-10)
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